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FQ1 could be a small beat but accelerating growth and better cash flow deployment the story

 

 

IGT will report earnings Tuesday night and while we’re not sure the print will itself be a big catalyst, we do expect a solid quarter with the potential for a beat.  The report and conference should confirm our positive thesis on this cheap stock.  EPS growth will be high in FQ1 and for all of FY2013 (20%+).  Cash flow remains strong and we expect IGT to maintain current leverage and potentially lever up somewhat through significant share repurchases.  The days of low ROI acquisitions appear to be over.

 

F1Q DETAIL

 

We estimate that IGT will report $530MM of total revenue and adjusted EPS of $0.25, 1% and 4% ahead of consensus, respectively.

 

Product sales of $224MM at a 53.5% gross margin

  • NA sales of $151MM and gross margin of $82MM
    • $105MM of NA box sales: 7,265 gaming machines at ASP of $14.5k
    • 6,055 replacements and 1,210 new units, ~2,000 shipments to Canada
    • ASP’s should be similar to last quarter with Canadian shipments down sequentially but IL VLT units should be up this quarter
    • Non box sales of $50MM - 1Q is almost typically weaker than 4Q since 4Q gets a spike from intellectual fees and settlements.
  • International sales of $68MM and gross margin of $34MM
    • $46MM of box sales: 3,000 units at an ASP of $15.5k
    • Non box sales of $22MM
    • 50% gross margins

Gaming operations revenue and gross margin of $306MM and $189MM, respectively

  • End of period install base of 57,632
  • Core gaming operations revenue of $250MM, implying an average win per day of $47/day
  • $57MM of interactive revenue
    • $37MM of DoubleDown revenue
    • $19MM of other interactive revenue

Other stuff:

  • SG&A: $105MM
  • R&D: $55MM
  • D&A: $21MM
  • Net interest expense: $20MM
  • 37% tax rate
  • Weighted average shares outstanding: 269MM